Panama is one of Central America’s biggest economic hubs, home to a robust tech and service sectors surrounding the Panama Canal. Many organizations are looking to hire employees from Latin America’s 7th largest economy, but it can be a complex process.
A big consideration is the cost of hiring an employee in Panama. This is dependent on many factors, including the salary, industry, and location of the employee. Also, all hiring processes must comply with Panamanian labor and tax laws.
Overall, it can be overwhelming. This article will guide you through the costs associated with hiring employees from Panama.
Mandatory Costs of Hiring in Panama
To ensure compliance, employers must adhere to national minimum wage requirements and the payroll cycle. In addition, they are required to pay a range of mandatory social security contributions and taxes for their employees.
Salary Considerations
Employees in Panama are paid on a monthly basis. The Panamanian minimum wage varies by industry, organization headcount, and location. Generally, though, the minimum wage ranges from $275.00 to $971.28 per month. Panama accepts two currencies: the US Dollar (USD) and the Panamanian Balboa (PAB). The two currencies are nearly equal in value, so this is an important factor to be aware of when hiring Panamanian employees.
However, for employees working in the tech sector or in Panama City, the salaries are higher. On average, employees make $2000 per month. If you’re looking to hire in Panama, it’s wise to stay competitive and attract top talent.
Another cost employers need to be aware of is the 13th month salary. Employees in Panama are entitled to receive a 13th salary, commonly referred to as the Decimo Tercer Mes. The 13th salary is the equivalent of one month of additional pay per year, and must be paid out in three installments in April, August, and December. This is a critical cost when looking to hire in Panama.
Taxes and Benefits
In Panama, the employer cost is approximately 38% of the employee salary, which includes the following:
- Social security contribution: 12.25%
- Educational insurance: 1.5%
- Seniority premium: 1.92%
- Accident insurance: 2.1%
Overtime Pay
The standard working week in Panama is Monday to Friday, eight hours per day. However, under certain circumstances, it can go Monday to Saturday, totalling 48 hours per week.
Employers are required to pay overtime in Panama. If an employee works an extra three hours per day, they are entitled to 125% of their pay on a standard working day. If they complete overtime after six o’clock, they are entitled to 150% of their pay. In the instance that an employee works overtime on a night shift, they are entitled to 175% of their pay.
Types of Paid Leave
Employees in Panama are entitled to various types of paid leave, many of which are paid by the employer. The type and length of leave sometimes depend on the seniority of the employee.
Vacation and Public Holidays
After one year of consecutive employment, employees are entitled to 30 days of paid annual leave. However, employers and employees can come to a mutual agreement to accumulate two periods of paid time off.
Panama has 13 public holidays throughout the year, in which employees are not required to work.
Sick Leave
Employers are required to pay the first three days of an employee’s sick leave. From then on, 70% of the salary is paid by social security. Sick leave is capped at 26 weeks.
Parental Leave
Panama has paid maternity leave, paternity leave, and leave for adoptive mothers. Maternity leave lasts 14 weeks with full salary. However, it’s important to know when employers are required to pay maternity leave and when social security is required to pay. If an employee has accumulated nine monthly social security quotas before the seventh month of their pregnancy, only then is their maternity leave covered by social security. If not, the employer is required to pay.
New fathers are entitled to three days of paternity leave, receiving 100% of their pay from the employer.
Severance Pay
According to Panamanian labor law, severance pay is required when an employee is terminated due to redundancy. Severance depends on how long the employee has been working with the company. If it’s under six months, they’re entitled to only two weeks pay. For those who have worked for five to ten years, pay ranges from five months to nine months of severance pay. In the instance that an employee has worked for longer than 20 years, they’re entitled to 14.8 months of severance.
If redundancy is not the root cause of termination, the employer is not required to pay severance.
Supplemental Costs of Hiring in Panama
While there are statutory benefits an employer must provide to employees, like paid vacation, there are also supplemental benefits. Offering additional benefits will help attract top talent during the recruiting process. While offering more benefits may cost more, it will help with employee performance and retention.
Benefits
Making sure your new employees are happy and healthy is paramount. You can support their health by offering a strong benefits package. While many employers choose to offer private health insurance for their employees, doing so comes at an extra cost.
The price will vary significantly depending on the type of private health insurance and coverage options. However, private healthcare expenses in Panama depend largely on the local cost of living — which is much lower than the United States and Canada.
EORs, like Borderless, typically offer benefits packages, which usually include medical insurance, dental insurance, vision insurance, life insurance, and retirement savings plans.
Workspace Costs
Employers also need to take workspace costs into account when hiring in Panama. Since your new hires will be working remotely, they need to have a home office set up or a coworking membership.
Providing a home office stipend can be hugely beneficial. It can go towards a company laptop, ergonomic office chairs, or keeping your system secure, like with antivirus software.
Panama City and coastal towns have received an influx of remote workers looking for coworking offices, so finding a workspace for your employee shouldn’t be a problem. There are numerous coworking offices in Panama City, many of which include single desks or offices for up to ten people.
For example, My Office, in the center of Panama City, has desks, small offices, or large offices, starting at $100 per month. In David, Area Coworks is available for up to $300 per month. There are also coworking spaces in bustling beach towns like Bocas del Toro and Colón
Bonuses and Extras
The 13th month bonus is mandatory in Panama, however, some employers may choose to offer performance-based bonuses as well. Additionally, employers may want to consider offering employees a lunch or coffee stipend.
Hire in Panama with Borderless
Hiring in Panama may feel overwhelming, especially with so many different costs to keep in mind. Working with an Employer of Record (EOR) can help take the stress out of global hiring and determining the cost of hiring abroad.
An EOR like Borderless will do the heavy lifting, guaranteeing that you compliantly hire and pay employees in Panama.
To get started, book a demo today.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
